Wednesday, August 12, 2015

Nearing Capitulation

The China yuan devaluation is starting to panic investors.  The hedge fund favorites, Japan and Europe, are taking the biggest hits.  It is not common to see these huge trench like drops overnight in a market with a VIX of 14, so it is curious why volatility is so low when you have these kind of overnight moves.  It seems as if options market makers are willing to sell put protection for much less than when we saw similar jerky movements in January, when the VIX was trading closer to 20.

With the overnight weakness and Chinese devaluation, you should expect a weak close today.  Intraday action is a toss up, but I don't expect any intraday strength to last into the close.  Levels of ES support are the overnight lows around 2055, which also is near the levels of the lows 2 weeks ago, and 2035, which would coincide with SPX 2040.  I would buy any capituation today or tomorrow.  This looks like a retest of the July bottom.


MM111 said...

Strong bounce. Do you think 2053 was the low?

Market Owl said...

Yeah, high probability that was the bottom. We may get one more chance to buy the dip tomorrow, but after that, on to new all time highs. I think we will break this trading range to the upside.